Oil futures pare record gains as doubts creep in on Trump’s Saudi-Russia output deal

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Reuters
KEY POINTS
  • Brent crude futures fell 3%, or 9 cents, to $29.05 as of 0127 GMT, after having soared 21% on Thursday.
  • U.S. West Texas Intermediate (WTI) crude futures fell 5.2%, or $1.32, to $23.98 a barrel, after having surged 24.7% on Thursday.
GP: Oil Pumping Jacks
Oil pumping jacks, also known as “nodding donkeys”, operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg via Getty Images

Oil prices fell on Friday, coming off their biggest one-day gains in the previous session after U.S. President Donald Trump said he had brokered a deal between Saudi Arabia and Russia to cut output, but made no offer to reduce U.S. production.

Brent crude futures fell 3%, or 9 cents, to $29.05 as of 0127 GMT, after having soared 21% on Thursday.

U.S. West Texas Intermediate (WTI) crude futures fell 5.2%, or $1.32, to $23.98 a barrel, after having surged 24.7% on Thursday.

Friday’s drop reflected market skepticism over whether a deal to call off a damaging Saudi-Russian price war would go ahead if there was no cooperation from other producers including the United States. Trump told reporters at the White House late on Thursday he had made no offer to cut U.S. output.

“Both Riyadh and Moscow will also be looking for participation from U.S. producers, and this may prove now to be the biggest obstacle to an agreement,” Royal Bank of Canada analysts said in a note.

Trump said he had spoken with both Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin on Thursday, and said he expected they would cut oil output by as much as 10 million to 15 million barrels per day (bpd).

Even with the huge gains on Thursday, prices have still slumped nearly 60% this year as oil demand has plummeted due to the coronavirus pandemic slashing demand even as Saudi Arabia and Russia said they would boost output in April amid their price war, raising the prospect of a flooded market.

Analysts said even if Russia and Saudi Arabia agreed to cut production by as much as 15 million bpd, that would not be enough to balance the market in face of a deep economic recession.

“The 10-15 million bpd oil production cut reportedly being brokered by President Trump is a great start, but deeper cuts will likely be needed to get through a difficult Q2,” said Stephen Innes, chief global market strategist at AxiCorp.

A deal between Russia and Saudi Arabia could effectively establish a floor for WTI in the $30s, he said.

With the coronavirus pandemic worsening, the global market is facing a huge oversupply of around 25 million bpd. Cutting 10 million bpd of supply would at least help ease a shortage of crude storage capacity, Rystad Energy said.

“Running out of storage capacity would result in a complete collapse of the oil market,” Rystad’s head of analysis, Per Magnus Nysveen said.

Oil extends gains after Trump hints at intervening in Saudi-Russia price war

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Reuters
KEY POINTS
  • U.S. crude futures for April rose 92 cents, or 3.7% to $26.14 a barrel. The front-month April contract, which spiked 24% on Thursday, expires later on Friday.
  • Brent crude futures climbed 57 cents, or 2%, to $29.04 per barrel. Brent rose 14.4% on Thursday in its biggest one-day gain since September.
GP: US Pumpjack at Dusk in the Permian Basin
Silhouette of Permian Basin pumpjacks taken at dusk, north of Midland, Texas, U.S. in late 2019.
Richard Eden | via Getty Images

U.S. crude oil prices rose over $1 on Friday, extending steep gains from the previous session, after U.S. President Donald Trump hinted he may intervene in the price war between Saudi Arabia and Russia at an “appropriate time”.

Prices were also supported by United States’ plans to buy oil for its emergency stockpile, while regulators in the country’s largest oil-producing state Texas were reportedly considering curtailing production.

“Such actions, if implemented, would reduce global and domestic supplies and help support prices in the near-term,” Goldman Sachs said in a note on Friday.

“While this support could prove lasting in 2H20, the accompanying supply cuts would however remain much too small to offset the current 8 million barrels per day hit on demand from the coronavirus…”

The more active West Texas Intermediate (WTI) crude futures contract for May was up $1.01, or 3.9% at $26.92 a barrel by 0352 GMT.

U.S. crude futures for April rose 92 cents, or 3.7% to $26.14 a barrel. The front-month April contract, which spiked 24% on Thursday, expires later on Friday.

Brent crude futures climbed 57 cents, or 2%, to $29.04 per barrel. Brent rose 14.4% on Thursday in its biggest one-day gain since September.

U.S. crude and Brent have both collapsed about 40% in the last two weeks since talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, broke down, which led Saudi Arabia to ramp up supply.

The Trump administration is considering a diplomatic push to get Saudi Arabia to close its taps and using the threat of sanctions on Russia to force them to reduce output, the Wall Street Journal reported, quoting unidentified sources.

“A fair bit of short covering ensued after President Trump suggested he may tackle the oil crisis by brokering a deal between Moscow and Riyadh,” Stephen Innes, chief market strategist at AxiCorp, said in a note.

U.S. crude prices were also supported by the country’s plans to buy crude for stockpiling after the U.S. Department of Energy said it would buy up to 30 million barrels of crude oil for the Strategic Petroleum Reserve by the end of June.

“Buying oil for the strategic reserve is a very constructive measure to help some U.S. producers avoid collapse amid the international price war,” said Per Magnus Nysveen, head of analysis at Oslo-based energy research firm Rystad Energy.

Oil rises for 2nd day amid hopes for output cut by US producers

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Reuters
KEY POINTS
  • Brent crude futures rose $1.44, or 3.9%, to $38.66 a barrel by 0226 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.12, or 3.3%, to $35.48 a barrel, following a jump of over 8% the previous day.
GP: Oil field 200227 Asia
A derek pumps in an oil field in Kuwait near the Saudi Arabian border.
Joe Raedle | Getty Images

Oil prices climbed for a second day on Wednesday, lifted by hopes that U.S. producers will cut output, but gains were limited compared with Monday’s crash after Saudi Arabia and Russia triggered a price war.

Brent crude futures rose $1.44, or 3.9%, to $38.66 a barrel by 0226 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.12, or 3.3%, to $35.48 a barrel, following a jump of over 8% the previous day.

“Expectations that U.S. shale oil producers will need to trim output helped improve the market sentiment,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

Occidental Petroleum on Tuesday joined a growing list of hard-pressed North American oil producers slashing spending and drilling after crude prices slumped to their lowest levels in more than three years.

Oil and equity markets had staged solid rebounds on Tuesday after the previous day’s pummeling, supported by signs of co-ordinated action by the world’s biggest economies to cushion the economic impact of the coronavirus epidemic.

But growing skepticism about Washington’s stimulus package to fight the coronavirus outbreak knocked the steam out of an earlier rally in Asian shares on Wednesday.

“The rebound in crude oil is not expected to last long, with Saudi and Russia boasting about how much they can boost output by as the battle for market share begins,” ANZ said in a note.

Saudi Arabia said on Tuesday it would boost its oil supplies to a record high in April, raising the stakes in a standoff with Russia and effectively rebuffing a suggestion from Moscow for new talks on production levels.

The clash of the two oil titans sparked a 25% slump in crude prices on Monday.

Russian oil minister Alexander Novak said on Tuesday he did not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June. But Saudi Arabia’s energy minister told Reuters he did not see a need for the meeting if there was no agreement on measures to deal with the impact of the coronavirus on oil demand and prices.

“If the slumping oil prices force U.S. shale oil producers to cut production by June, there is chance that OPEC+ would go back to an agreement to reduce output,” Rakuten’s Yoshida said.

On the downside, U.S. crude oil inventories rose in the most recent week, while gasoline and distillate stocks dropped, data from industry group the American Petroleum Institute showed on Tuesday.

Oil jumps more than 6% following worst day since 1991

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International benchmark Brent crude futures rose 7.13% to $36.81 per barrel while U.S. West Texas Intermediate futures jumped 6.55% to $33.17 per barrel.

The moves came following a tumble in oil prices in the previous trading session. WTI and Brent dropped 24.59% and 24.1%, respectively, sinking to more than 4-year lows.

The steep sell-off came amid escalating tensions between Saudi Arabia and Russia, which traders fear could lead to an excess supply of crude.

On Friday, OPEC ally Russia rejected the additional 1.5 million barrel per day production cut that the 14-member cartel proposed. After the unsuccessful talks concluded, OPEC’s de facto leader Saudi Arabia on Saturday slashed its official oil prices as it reportedly gets set to ramp up production.

The current production cuts expire at the end of March, which means that beginning April 1 nations can pump as much oil as they want.

This potential supply glut comes at a time when prices were already suppressed thanks to the coronavirus outbreak. A slowdown in travel has already hit demand, and a global economic slowdown could depress oil further.

On Monday the U.S. Department of Energy said the Trump administration is monitoring the situation following oil’s steep slide.

“These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility. The growth of the unconventional oil and gas industry in the United States has led to a more secure, resilient and flexible market,” the statement said.

— CNBC’s Eustance Huang contributed to this report.

Oil prices stabilize, set for weekly gain on hopes for supply cut

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Reuters
KEY POINTS
  • Brent crude futures were 1 cent higher at $56.35 a barrel by 0439 GMT, after gaining 1% the previous session. Brent is 3.4% higher for the week, the first increase since the week of Jan. 10.
  • U.S. West Texas Intermediate (WTI) futures were 4 cents higher at $51.46 a barrel. The contract rose 0.5% on Thursday and is now 2.2% higher for the week.
GP: Oil production facilities 200205 ASIA
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
Dado Galdieri | Bloomberg | Getty Images

Oil prices were steady on Friday, but set for their first weekly gain in six weeks on the assumption that major producers will implement deeper output cuts to offset slowing demand in China caused by the coronavirus epidemic.

Brent crude futures were 1 cent higher at $56.35 a barrel by 0439 GMT, after gaining 1% the previous session. Brent is 3.4% higher for the week, the first increase since the week of Jan. 10.

U.S. West Texas Intermediate (WTI) futures were 4 cents higher at $51.46 a barrel. The contract rose 0.5% on Thursday and is now 2.2% higher for the week.

“Oil prices appear to have stabilised this week on optimism that OPEC+ will once again do whatever it takes to tighten output and on hope that the coronavirus peak is nearing,” said Edward Moya, senior market analyst at OANDA in New York.

Crude prices have plunged about 20% from their 2020 peaks on Jan. 8 as oversupply concerns combined with worries about large fuel demand declines in China as the country’s quarantine to fight the coronavirus outbreak has stymied economic activity.

In response to the demand slump, the Organization of the Petroleum Exporting Countries (OPEC) and its allied producers, known as OPEC+, are considering cutting output by up to 2.3 million barrels per day.

“Sentiment remains cautious across Asia-Pacific region, due to virus uncertainty,” said Margaret Yang, market analyst at CMC Markets, adding that the extent of the virus-led global oil demand destruction remained unclear.

But other analysts caution the demand impact is only limited to China so far.

“The spread of the coronavirus remains extremely fluid and while market sentiment is held at the mercy of each passing coronavirus headline, our baseline thesis remains that oil demand destruction remains largely a China story and has yet to spill over to impact global demand,” said Helima Croft, head of commodity strategy at Citadel Magnus.

The market is signalling that some near-term demand for oil remains. The spread between the first-month April Brent future and the May contract has narrowed to a discount of only 1 cent a barrel on Friday from a discount of 33 cents a week ago.

The narrowing of this contango — a market situation that occurs when prompt prices are less than later-dated contracts — suggest that demand for oil is improving for Brent-related crude.

Still, some concern remains about the impact the Chinese demand slowdown may have.

The International Energy Agency (IEA) on Thursday said that first quarter 2020 oil demand is set to fall versus a year earlier for the first time since the financial crisis in 2009 because of the coronavirus outbreak in China.